Reform Fails to Slow Financial ETFs

What was the goal of financial-regulatory reform? Presumably, to increase oversight over Wall Street traders and reduce excessive risk-taking by proprietary trading desks.

Yet, Charlie Gasparino for FoxNews.com reports that Goldman Sachs ( GS) is already ahead of the curve. In less than two weeks since a $550 million settlement with the Securities and Exchange Commission, Goldman has moved half of its stock-trading operations to its asset-management division.

Why? Instead of taking risky market positions with company capital and operating as a separate trading entity within the larger corporation, traders working as part of a client-centered, asset-management group can take similar market risks. In other words, Goldman might simply need to label its investment activity as "customer-related" to trade as it sees fit.

Similar moves appear to be under way at Bank of America ( BAC), Gasparino reported. Why Bank of America? The firm picked up investment bank Merrill Lynch ( MER) in 2008.

It's not clear whether the capital-markets subsector of financial services will benefit from the shift. Since the regulations effectively passed both houses of Congress, two of three stock exchange traded funds with the most capital-markets exposure have gained handsomely, although this can also be attributed to less legislative uncertainty as well as a broader stock-market rally.

That said, a lot of smart folks seem to think Goldman Sachs (and Bank of America and JPMorgan ( JPM), et al.) will turn the new rules to their advantage. Investors will certainly want to keep an eye on financial-services ETFs that have made gains since the bill passed.

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